CQ TODAY ONLINE NEWS April 25, 2012 – 11:06 p.m.

GOP Offers Student Loan Remedy

By Lauren Smith, CQ Staff

Initial Republican resistance succumbed to aggressive presidential lobbying Wednesday, as all sides agreed that Congress should act to prevent student loan interest rates from doubling in July. Yet they proposed predictably different ways of paying for the legislative fix.

At a hastily called news conference, Speaker John A. Boehner, R-Ohio, said the House will consider a bill (HR 4628) Friday to postpone the student loan interest-rate increase for one year, paid for from what he called a “slush fund” in President Obama’s health care law that covers prevention and public health. Senate Republicans also backed that approach Wednesday.

“Let’s be honest,” McConnell said. “The only reason Democrats have proposed this particular solution to the problem is to get Republicans to oppose it, to make us cast a vote they think will make us look bad to the voters they need to win the next election.”

House Democrats, for their part, proposed a different offset: They introduced a bill Wednesday that would pay for the one-year extension of the current student loan interest rate by ending tax subsidies to oil and gas companies.

Earlier, congressional Republicans appeared resistant to extending the interest rate break, which they contend was never meant to be permanent. Then came Obama’s big public relations push in his weekly radio address over the weekend and his tour of several colleges this week. And on April 23, Republican presidential candidate Mitt Romney urged lawmakers to back the Obama administration’s request for an extension.

Even so, Boehner on Wednesday criticized the Democratic-controlled 110th Congress for passing the 2007 legislation (PL 110-84) that temporarily reduced the interest rate on subsidized Stafford loans to undergraduate students from 6.8 percent to 3.4 percent for four academic years.

“It’s a problem that has needed to be addressed,” Boehner said.

Ways to Save

The Congressional Budget Office estimates it would cost $6 billion to extend the current 3.4 percent student loan interest rate for one year.

The House Republican bill, introduced Wednesday by Judy Biggert of Illinois, as well as a draft Senate companion measure by Lamar Alexander of Tennessee, would repeal a fund in the health care law (PL 111-148, PL 111-152) that covers prevention and public health. Republicans say that would save $12 billion, with the remaining savings going to deficit reduction.

“The main reason why tuition is going up and loans are going up is President Obama and his health care policy,” Alexander said. “Federal health care mandates on states are soaking up the money that states would otherwise spend on colleges and universities.”

Sen. Tom Harkin, D-Iowa, chairman of the Health, Education, Labor and Pensions Committee, called that GOP offset “a tired, old attack” on the health care law.

GOP Offers Student Loan Remedy

“Suggesting that we eliminate a program that will save us billions in reduced health spending in the long term is not a serious proposal,” he said.

Reid’s bill would be paid for by ending a tax break on S corporations, companies that pass their income, losses, deductions and credits through to shareholders for federal tax purposes. Under the proposal, shareholders who are also employees would be subject to Social Security and Medicare payroll taxes on their dividends and shares of the company’s profits in addition to their wages.

The proposal would raise an additional $3 billion from Social Security revenue that would be put in the Social Security Trust fund.

Harkin said the Senate will consider the student loan interest rate bill next month.

McConnell contended that the proposal would make hiring even harder for small businesses. “We happen to think that at a time when millions of Americans — and countless college students — can’t even find a decent job, it makes no sense whatsoever to punish the very businesses we’re counting on to hire them,” he said. “It’s counterproductive, and it’s wrong.

But Senate Democrats underscored that the proposed offset would affect a small subset of S corporations — those whose incomes are more than $250,000.

The House Democrats’ bill, meanwhile, would eliminate Section 199 of the Internal Revenue Code, which provides a 6 percent deduction for oil and gas companies. The proposal would generate $12.7 billion and additional savings would go to deficit reduction.

Tied to the Future

The chairmen of the education committees in both chambers signaled they plan to use the one-year extension to find a way to permanently fix the student loan interest rate.

Harkin said that he plans to put a low-interest rate permanently in place when reauthorizing the Higher Education Act (PL 110-315) next year. The solution, he said, would not necessarily mean a continuation of the current 3.4 percent rate, but a similarly low rate.

“That’s our goal if we can get to that,” agreed Sen. Sherrod Brown, D-Ohio, adding that it will depend on funding levels for the Pell grants program, and what states and universities are able to do to help keep tuition low.

Harkin also said that he plans to use the reauthorization to address the issue of student loan debt on a much larger scale. This would include proposals such as legislation (S 1102) sponsored by Senate Majority Whip Richard J. Durbin, D-Ill., that would make student loan debt dischargeable during bankruptcy.

House Education and the Workforce Committee Chairman John Kline, R-Minn., said that the extension will give his panel time to work on “a long-term solution” that is “not political.”